Warm Southern Breeze

"… there is no such thing as nothing."

Cheating On Taxes, Bumming A Ride, And Economic Growth

Posted by Warm Southern Breeze on Wednesday, June 30, 2021

Renown U.S. economist John Kenneth Galbraith (1908-2006) identified an economic theory – the “horse and sparrow” – which he described thusly:

“If you feed the horse enough oats,
some will pass through to the road for the sparrows.”

Today, we call that “trickle down” economics – the theory popularized and promoted by POTUS Ronald Reagan. Never mind that the word “trickle down” just sounds so very wrong – the picture of urine being foremost – but the renown London School of Economics has recently put the kibosh on that idea, after studying history of 38 nations over 50 years which did the same thing – cut taxes on the wealthy in the hopes that it would provide economic stimulus of various and sundry types.

It did not.

For anyone who’s been paying even the slightest amount of attention, they would know that the world’s wealthiest man – Jeff Bezos – paid practically no income taxes on his vast personal fortune, neither did his corporation, Amazon. He was by no means the only one who shirked their patriotic duty by cheating the government, there were many more – billionaire pal Elon Musk is among them.

Dr. John Kenneth Galbraith, PhD, was a noted economist and author, the Paul M. Warburg Professor of Economics, Emeritus, at Harvard University, former Ambassador to India, and former Presidential Advisor. Internationally renown for development of Keynesian and post-Keynesian economics, he was equally well-known for his wit and candor, evidenced in his prolific writings, which included over 30 books. His last book was a 1999 memoir “Name-Dropping,” in which he wrote about the historical individuals whom he’d known in his long, colorful life as an economist, professor, ambassador, and lifelong liberal.
Harvard University News Office image handout

As well, PayPal founder Peter Thiel, another billionaire, took unfair and unjust advantage of a Roth IRA – a savings vehicle created and designed to benefit the working families of America – and using tricks and maneuvers not available to the average person, turned a retirement account worth under $2000 in 1999, into a $5 billion tax-free windfall by the end of 2019. That same year, Forbes estimated his net worth at $2.3 billion – less than half of his Roth IRA’s value.

In stark contrast, the average Roth IRA was valued at $39,108 at the end of 2018.

So, we have one perspective, but let’s put things in even more clear focus, shall we?

How much is $5 billion?

If every single one of the 2.3 million people in Houston, Texas were to deposit $2,000 into a bank today, the total of all their accounts would still not equal what Peter Thiel has in his Roth IRA.

Of course, since a Roth IRA is a retirement income savings vehicle, taxation of deposited funds is not just significantly deferred until after the 60th birthday of the depositor, it is 100% TAX FREE FOREVER. So in essence, he cheated the system.

While you, I, and other patriotic Americans are dutifully paying our income taxes like the loyal citizens we are – paying for all of our nation’s governmental services, military service members salaries, defense budget, and more – most all wealthy Americans are very happy to continue shirking their responsibilities to pay their fair share, and are even more happy that you, I, and every other red-blooded patriotic American are picking up the tab for them.

This article details exactly how PayPal billionaire Peter Thiel truly cheated a system which was NOT designed for wealthy individuals.
https://www.propublica.org/article/lord-of-the-roths-how-tech-mogul-peter-thiel-turned-a-retirement-account-for-the-middle-class-into-a-5-billion-dollar-tax-free-piggy-bank

This article cites prospective Congressional action which will likely be taken following publication, and discovery of the abuses of the Roth IRA by Peter Thiel, and other ultra-wealthy individuals.
The Ultrawealthy Have Hijacked Roth IRAs. The Senate Finance Chair Is Eyeing a Crackdown.
https://www.propublica.org/article/the-ultrawealthy-have-hijacked-roth-iras-the-senate-finance-chair-is-eyeing-a-crackdown

Now, as for the Horse And Sparrow Theory, a research paper by the London School of Economics found that, contrary to the assertions of those who promoted them, tax cuts upon the wealthy DO NOT improve the economy in any way whatsoever.

The study examined “data from 18 OECD countries over the last five decades to estimate the causal effect of major tax cuts for the rich on income inequality, economic growth, and unemployment.” OECD is the Organization for Economic Development and Cooperation, of which there are 38 signatory member nations, the USA being one.

Following are pertinent excerpts from the research.

Excerpts from:
The Economic Consequences of Major Tax Cuts for the Rich

by David Hope, Julian Limberg
Working Paper 55
December 2020
The London School of Economics and Political Science

“…major reforms reducing taxes on the rich lead to higher income inequality as measured by the top 1% share of pre-tax national income.”

“…such reforms do not have any significant effect on economic growth and unemployment.”

“…lower taxes on the rich, especially top marginal income tax rates, are strongly associated with rising top incomes.”

“There are few empirical studies exploring the relationship between taxes on the rich and economic performance, however, and the evidence we do have is mixed.”

“… it remains an open empirical question how cutting taxes on the rich affects economic outcomes.”

“…major tax cuts for the rich increase the top 1% share of pre-tax national income in the years following the reform…”

“…economic performance, as measured by real GDP per capita and the unemployment rate, is not significantly affected by major tax cuts for the rich.”

“…tax cuts for the rich are associated with rising top income shares.”

“…income tax holidays and windfall gains do not lead individuals to significantly alter the amount they work.”

“… cutting taxes on the rich increases income inequality but has no effect on growth or unemployment.”

“…lower taxes on the rich encourage high earners to bargain more forcefully to increase their own compensation, at the direct expense of those lower down the income distribution.”

“…tax policies on the rich have converged among OECD countries over time.”

“…major tax cuts lead to a significant increase in inequality and that this effect becomes stronger with time.”

“Reforms that reduce taxes on the rich have a substantial short- and medium-term effect on the top 1% share of pre-tax national income. On average, such reforms increase the top 1% income share by more than 0.8 percentage points after 5 years.”

“…tax reforms do not lead to higher economic growth. The effect size of major tax cuts for the rich on real GDP per capita is close to zero and statistically insignificant.”

“Major tax cuts for the rich do not lead to higher growth in either the short or medium run.”

“Cutting taxes for the rich increases the top 1% share of pre-tax national income significantly and this effect persists over time.”

“…effects of tax cuts for the rich on unemployment rates are not robust.”

“Whereas tax cuts for the rich lead to higher income inequality, they do not have a robust effect on either economic growth or unemployment rates.”

“…major tax cuts for the rich push up income inequality, as measured by the top 1% share of pre-tax national income.”

“… we find no significant effects of major tax cuts for the rich. More specifically, the trajectories of real GDP per capita and the unemployment rate are unaffected by significant reductions in taxes on the rich in both the short and medium term.”

“…cutting taxes on the rich increases top income shares, but has little effect on economic performance.”

So, we see that from their research of 38 nations over a period of 50 years, tax rate reductions upon the wealthy have done nothing for the greater good – the economy.

But, what does?

In the immediate post-WWII era, the top personal income tax rates upon the wealthiest Americans was between 70-90% – that was under a 2-term Republican President Dwight David Eisenhower. During that time, and the years thereafter, our nation grew like gangbusters, and massive investment in economic infrastructure, education, health and basic research ensued – thereby creating the largest and most productive middle class which the world has ever seen.

But by the 1980’s, investment in economic infrastructure — and its necessary ongoing maintenance — wasn’t “cool” any longer, and personal income taxes upon the wealthiest Americans was significantly cut by POTUS Reagan. What followed next is the cause our suffering now: Crumbling economic infrastructure, grossly inadequate public schools, wildly dysfunctional private healthcare and public health agencies, a shriveled core of basic research, while productivity has fallen through the floor.

And yet, we know that investment in public economic infrastructure pays rich rewards. Studies show that an average return on every $1.00 of infrastructure investment pays $1.92, and a 10-16% return comes from investment in early childhood education – with 80% of those benefits going directly to the general public. Those aren’t shabby figures.

During this pandemic, the wealth of the wealthiest Americans has exploded.

Since it all began, only 651 Americans – out of the over 330 million we have – 651 billionaires have gained a total of $1 trillion of private wealth.

How much is that?

They could have sent a $3,000 check to every single man, woman, and child in the United States and STILL be as wealthy as they were before the pandemic began.

Yeah.

Think about that a little while.

Our nation’s tax laws and policies have long been overdue for an overhaul, and the tax breaks which Congress gifted to the wealthiest Americans at the expense of the average working person should be eliminated, and we should return to the personal income tax rates that existed in the post-WWII era of the Eisenhower administration – 70-90% for the very wealthiest.

THAT is how to GROW AMERICA!

This is probably not the first time you’ve ever “heard” me say that.

And it likely won’t be the last.

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